Question 1

In the U.S., between 1990 and 2007, capital stock and the level of technology increased dramatically. During the same period, employment and real wages rose. What do these set of events suggest?

Accepted Answer

The increase in capital stock and level of technology suggests an increase in productivity, which can lead to an increase in demand for labor. The fact that employment and real wages also rose suggests that the increase in demand for labor was greater than the increase in supply of labor, leading to a tight labor market and higher wages.

Question 2

Which of the following would shift the production function upward?

Accepted Answer

An increase in the availability of a natural resource would shift the production function upward, as it would allow for more output to be produced at any given level of inputs. An increase in the price of oil and a decrease in the supply of labor would shift the production function downward, as they would increase the cost of production and limit the amount of output that can be produced. An increase in the nominal wage rate would not necessarily affect the production function, as it only reflects a change in the cost of labor, not the overall ability to produce output.

Question 3

An increase in the capital stock would shift the production function _______ and the long-run aggregate supply curve to the _______.

Accepted Answer

An increase in the capital stock would shift the production function upward, meaning that more output can be produced for any given level of inputs. This would also shift the long-run aggregate supply curve to the right, indicating that the economy can produce more output at any given price level.

Question 4

The model of aggregate demand and long-run aggregate supply predicts that, all other things unchanged, improved technology will

Accepted Answer

Improved technology will increase productivity, which will increase the demand for labor as firms increase production. With the increased demand for labor, real wages will increase, as firms must pay higher wages to attract workers.

Question 5

Figure 8-6 
-Refer to Figure 8-6. Assume that the economy is initially in long-run equilibrium. What happens in the long-run if the capital stock in this economy increases over time?

Accepted Answer

An increase in the capital stock will shift the potential GDP curve outwards, causing an increase in the nation's capacity to produce in the long run, which is illustrated by a rightward shift of the long-run aggregate supply (LRAS) curve. This will not affect the short-run aggregate supply (SRAS) or aggregate demand (AD) curves. Therefore, choice A is the correct answer.

Question 6

Figure 8-6 
-Refer to Figure 8-6. Assume that the economy is initially in long-run equilibrium. Suppose the federal government initiates a tax program that stimulates firms to increase their investment and this leads to economic growth. This policy might, in the short run, result in

Accepted Answer

The tax program stimulates firms to increase their investment, resulting in an increase in aggregate demand. In the short run, the aggregate demand curve shifts rightward, leading to an increase in output and prices. As output increases, firms may face cost push inflation and may increase their prices. This results in higher profits and firms expand production, leading to higher output and employment. However, in the long run, the increase in investment leads to an increase in the capital stock and productivity, shifting the long-run aggregate supply curve rightward. As the economy adjusts to the new equilibrium, output returns to its potential level, and prices stabilize. Ultimately, in the long run, both the long-run aggregate supply and short-run aggregate supply curves shift rightward due to increased investment, while the aggregate demand curve also shifts rightward due to the tax program.

Question 7

Which of the following must also shift if the long-run aggregate supply curve shifts?

Accepted Answer

The answer of Which of the following must also shift...

Question 8

Figure 8-5  Panel (a) shows an economy's aggregate production function, Panel (b) shows the labor market and Panel (c) shows the economy's long-run aggregate supply curve.
-Refer to Figure 8-5. In Panel (c), the position of the long-run aggregate supply curve is determined by

Accepted Answer

The answer of Figure 8-5  Panel (a) shows an...

Question 9

Which of the following will not increase the productivity of labor?

Accepted Answer

While an increase in the size of the labor force may result in an increase in the total output, it does not necessarily increase the productivity of each individual worker. Technological improvements, an increase in the capital stock, and improvements in education can all lead to increased efficiency and output per worker, thus increasing their productivity.

Question 10

Figure 8-5  Panel (a) shows an economy's aggregate production function, Panel (b) shows the labor market and Panel (c) shows the economy's long-run aggregate supply curve.
-Refer to Figure 8-5. An upward shift of the aggregate production function would lead to

Accepted Answer

An upward shift of the aggregate production function means that, for any given level of employment, the economy can produce more output. This leads to an increase in real GDP. However, since output per worker has increased, firms are willing to pay higher wages, leading to an increase in the real wage. Therefore, the correct answer is D.

Question 11

Figure 8-5  Panel (a) shows an economy's aggregate production function, Panel (b) shows the labor market and Panel (c) shows the economy's long-run aggregate supply curve.
-Refer to Figure 8-5. If a change in technology moves the aggregate production function upward,

Accepted Answer

An upward shift in the aggregate production function implies an increase in productivity and output per worker. This will increase the firms' demand for labor, leading to an increase in the demand for labor in the labor market. Therefore, the correct choice is C, the demand for labor increases.

Question 12

Figure 8-6 
-Refer to Figure 8-6. Assume that the economy is initially in long-run equilibrium. If oil prices in the economy increased dramatically and remained high for so long that most of the industries in the economy had to significantly form new capital and retool much of its existing capital, the economy would suffer. In this event,

Accepted Answer

A dramatic increase in oil prices would lead to a decrease in the economy's aggregate supply in both the short and long-run. This would lead to a decrease in future industrial capacity and prospects for economic growth. As a result, the long-run aggregate supply and the short-run aggregate supply curves would shift left, reducing the future industrial capacity and prospects for economic growth. There would also be a reduction in aggregate demand due to the decrease in consumer and business confidence. However, the decrease in aggregate demand alone would not account for the decrease in industrial capacity and economic growth that would result from the increase in oil prices.

Question 13

The position of the long-run aggregate supply curve is determined by
I. the aggregate production function
II. the labor demand curve
III. the labor supply curve
IV. the prevailing average price level

Accepted Answer

The long-run aggregate supply curve is determined by factors that affect the potential output of the economy, such as the aggregate production function, the labor demand curve, and the labor supply curve. The prevailing average price level does not determine the position of the long-run aggregate supply curve, as it is vertical at the potential output level, indicating that price levels do not affect the quantity of goods and services supplied in the long run.

Question 14

Figure 8-5  Panel (a) shows an economy's aggregate production function, Panel (b) shows the labor market and Panel (c) shows the economy's long-run aggregate supply curve.
-Refer to Figure 8-5. If a change in technology moves the aggregate production function in Panel (a) upwards, what happens to the economy's potential output?

Accepted Answer

An upward shift in the aggregate production function means that the economy is able to produce more output for any given level of inputs, including labor. This means that potential output (the maximum amount of goods and services an economy can produce with its available resources) increases.

Question 15

Figure 8-6 
-Refer to Figure 8-6. Assume that the economy is initially in long-run equilibrium. What happens if the price of oil, a key input, increases significantly in the economy?

Accepted Answer

An increase in the price of oil will cause a leftward shift in the short-run aggregate supply (SRAS) curve, as higher input costs will increase production costs and reduce the profitability of producing output at each price level. In the short run, this shift will cause higher prices and lower output levels. However, in the long run, firms will adjust their production processes and new firms will enter the market, causing the long-run aggregate supply (LRAS) curve to also shift leftward. Eventually, the economy will return to potential output, but at a higher price level. The aggregate demand (AD) curve is not directly affected by changes in input costs and therefore does not shift in response to the increase in the price of oil.

Question 16

Figure 8-5  Panel (a) shows an economy's aggregate production function, Panel (b) shows the labor market and Panel (c) shows the economy's long-run aggregate supply curve.
-Refer to Figure 8-5. In Panel (c), the long-run aggregate supply curve is vertical because

Accepted Answer

In Panel (c), the long-run aggregate supply curve is vertical because perfectly flexible nominal wages in the long run allow any number of wage/price level combinations to result in a real wage that equilibrates the labor market. This means that in the long run, the economy can adjust production to meet changes in demand without being constrained by diminishing marginal returns. Therefore, the long-run aggregate supply curve is vertical.

Question 17

Figure 8-5  Panel (a) shows an economy's aggregate production function, Panel (b) shows the labor market and Panel (c) shows the economy's long-run aggregate supply curve.
-Refer to Figure 8-5. In the long run, any price level is consistent with a real wage of $40,000 because

Accepted Answer

In the long run, nominal wages are perfectly flexible, meaning they can adjust to changes in the price level to ensure that the real wage (the purchasing power of the nominal wage) remains consistent, in this case, at $40,000. This flexibility allows for the real wage to be maintained over time regardless of fluctuations in the price level.

Question 18

Which of the following events will shift the long-run aggregate supply curve?

Accepted Answer

A liberal immigration policy that welcomes foreign workers will increase the supply of labor in the economy, shifting the long-run aggregate supply curve to the right. A decrease in participation by women in the labor force (A) and a decrease in the average work week (D) would both decrease the supply of labor and shift the long-run aggregate supply curve to the left. An increase in the economy's general price level (B) would have no effect on the long-run aggregate supply curve as it only affects the short-run curve.

Question 19

Figure 8-6 
-Refer to Figure 8-6. Assume that the economy is initially in long-run equilibrium. What happens if investment spending increases?

Accepted Answer

An increase in investment spending would increase aggregate demand, shifting the AD curve to the right. This increase in demand would cause the price level to increase in the short-run, while output would also increase. In the long-run, however, the aggregate supply curve would also shift rightward to accommodate the increased demand, causing output to return to the natural level of output and the price level to settle at a higher level than initially. Therefore, the correct answer is D.

Question 20

Which of the following statements is true?

Accepted Answer

Technological change and capital investment tend to increase labor productivity, which in turn increases real wages. This happens because as productivity increases, firms can afford to pay higher wages to workers while still remaining profitable. Therefore, statement B is true. Statement A is incorrect because while technological gains may reduce the demand for certain types of labor, they can also increase the demand for other types of labor that are complementary to the new technology. Statement C is incorrect because while changes in technology and capital investment can lead to short-term job losses in some industries, the long-term effects are more positive for employment due to increased productivity and economic growth. Statement D is incorrect because the effect of technological change and capital investment on wages depends on the specific context and cannot be determined without further information.

Quiz 23: The International Trade and Capital Flows

In the U.S., between 1990 and 2007, capital stock and the level of technology increased dramatically. During the same period, employment and real wages rose. What do these set of events suggest?

Which of the following would shift the production function upward?

An increase in the capital stock would shift the production function _ and the long-run aggregate supply curve to the _.

The model of aggregate demand and long-run aggregate supply predicts that, all other things unchanged, improved technology will

Figure 8-6 -Refer to Figure 8-6. Assume that the economy is initially in long-run equilibrium. What happens in the long-run if the capital stock in this economy increases over time?

Figure 8-6 -Refer to Figure 8-6. Assume that the economy is initially in long-run equilibrium. Suppose the federal government initiates a tax program that stimulates firms to increase their investment and this leads to economic growth. This policy might, in the short run, result in

Which of the following must also shift if the long-run aggregate supply curve shifts?

Figure 8-5 Panel (a) shows an economy's aggregate production function, Panel (b) shows the labor market and Panel (c) shows the economy's long-run aggregate supply curve. -Refer to Figure 8-5. In Panel (c) , the position of the long-run aggregate supply curve is determined by

Which of the following will not increase the productivity of labor?

Figure 8-5 Panel (a) shows an economy's aggregate production function, Panel (b) shows the labor market and Panel (c) shows the economy's long-run aggregate supply curve. -Refer to Figure 8-5. An upward shift of the aggregate production function would lead to

Figure 8-5 Panel (a) shows an economy's aggregate production function, Panel (b) shows the labor market and Panel (c) shows the economy's long-run aggregate supply curve. -Refer to Figure 8-5. If a change in technology moves the aggregate production function upward,

The position of the long-run aggregate supply curve is determined by I. the aggregate production function II. the labor demand curve III. the labor supply curve IV. the prevailing average price level

Figure 8-6 -Refer to Figure 8-6. Assume that the economy is initially in long-run equilibrium. What happens if the price of oil, a key input, increases significantly in the economy?

Figure 8-5 Panel (a) shows an economy's aggregate production function, Panel (b) shows the labor market and Panel (c) shows the economy's long-run aggregate supply curve. -Refer to Figure 8-5. In Panel (c) , the long-run aggregate supply curve is vertical because

Figure 8-5 Panel (a) shows an economy's aggregate production function, Panel (b) shows the labor market and Panel (c) shows the economy's long-run aggregate supply curve. -Refer to Figure 8-5. In the long run, any price level is consistent with a real wage of $40,000 because

Which of the following events will shift the long-run aggregate supply curve?

Figure 8-6 -Refer to Figure 8-6. Assume that the economy is initially in long-run equilibrium. What happens if investment spending increases?

Which of the following statements is true?